How to lose $93m on the Sydney land market

The State Treasurer, Michael Egan, has referred the sale of a prime city block of government-owned land to the corruption watchdog after the Herald asked why it was sold for $93 million less than its official valuation eight years earlier.

The Government sold the land, now occupied by the five-star InterContinental Hotel, for $37 million in August 1999 to Lend Lease Project Finance.

But in Parliament in 1991, Mr Egan accused the then Greiner government of secretly trying to sell the same block on the cheap after the government valuer priced it at up to $130 million.

The State Transit Authority had owned the property, and the disclosure comes just weeks after commuters were warned about the need for hefty fare increases to fund repairs to crumbling public transport infrastructure.

Mr Egan said he was not personally involved in the sale negotiations but had signed off on the deal.

"Neither the Treasurer nor any of his staff had any direct involvement in the sale," Mr Egan said in a statement.

"The sale was conducted by public servants and their professional advisers using an open tender. The highest bid won."

But in 1991, Mr Egan said taxpayers were being "short changed" by a "little private deal" which would have seen the land going to the then owner of the hotel, the former British Conservative Party treasurer Lord McAlpine, for $44 million.

Following pressure from Mr Egan and the then Opposition, that deal never went ahead.

Until the sale by the Labor Government in 1999, the land had been rented to BT Hotel Trust for $3.5 million a year, under a deal that was not due to expire until 2081.

The agreement included a regular rent review, and it had been due to increase in 2000.

After the Government sold the land, Lend Lease renegotiated the lease to BT Hotel Trust, setting a new term of 30 years.

Rent was fixed at the old annual rate of $3.5 million until June 2004 and was then due to grow at 1 per cent a year until 2029.

Under the terms of the new deal, the hotel trust will become the owner of the land at the end of the 30 years. It will pay $2 million for the freehold but this has already been offset by an upfront rent reduction of the same amount - so it effectively gets the land for free.

BT Hotel Trust is now Principal Hotel Group, a subsidiary of the US pension fund giant Principal Funds Management. Lend Lease Project Finance is an arm of Lend Lease Corporation.

In a letter faxed to the ICAC Commissioner, Irene Moss, yesterday, Mr Egan said questions put to him by the Herald raised "issues of probity".

"I believe it is appropriate that I bring this matter to the commission's attention for whatever action is deemed appropriate," the letter says.

However, he gave no more detail about why he referred it to ICAC.

In earlier statements to the Herald, Mr Egan said the amount the Government received for the land in 1999 had been at the upper range of expectations.

"Seven bids were received," he said.

"The highest bid was selected. The Government made a profit on the sale."

Mr Egan said that in 1991, when he told Parliament the same block of land had been valued at up to $130 million, he had been relying on a "valuation provided by the government valuer at the time" .

He declined to say why he sold the land in 1999 when the highest bid fell far short of his earlier valuation.

He also declined to say why he needed to sell the land when it would have returned close to $37 million to the public purse over 10 years anyway.

Antony Karp, the managing director of Principal Hotel Group, said: "Our ground rent has not changed before or after the freeholding of the land. The reality is that whoever said it was worth $100 million, our rent would never have justified that."